An individual owned an interest-bearing debt of a wholly-owned corporation operating a restaurant which in 20X1 sued the franchisor at the same time as closing the restaurant.
Regarding whether a business investment loss could be realized as a result of the sale by an individual of the debt of a wholly-owned corporation for $1 to unrelated creditors of the corporation pursuant to a proposal filed with the corporation's creditors, viewed as a disposition to arm’s length persons for purposes of s. 39(1)(c)(ii), CRA stated:
A situation where one party to a transaction is merely accommodating the other party in an attempt to obtain a certain tax result may be a situation where the parties are not dealing at arm's length because they do not have separate economic interests which reflect ordinary commercial dealings between parties acting in their own separate interests.